Sunday, November 29, 2009

Buying a car without telling your wife is a stupid idea. And the giant bow? Designed to impress the neighbors no doubt!

A friend of mine sent me this viral video recently, which is a take-off on the classic "Honey, I bought you a Cadilliac for Christmas" advertisement. It is pretty funny.

The idea of giving a car as a gift for Christmas has been promoted by the media over the years. Dad can come off as a hero if only he surprises the wifey with an expensive SUV or Caddy, replete with a giant BOW on the hood or roof.

Saturday Night Live did a spoof on this concept with a fake commercial for Giant Car Bows. Husband surprises the wife with a new SUV, only to find out she is disappointed when it doesn't come with a giant bow attached. (If you have a link to this skit, please let me know).

Ironically, when searching for this SNL skit on the Internet, I did find links to companies that actually make Giant Car Bows. So the spoof on SNL was a little too close to reality. People apparently do this - act out the advertisement on TeeVee and buy their spouse a new car for Christmas, replete with Giant Car Bow. I wonder if the reality is anything like the commercials. I doubt it.

An early sighting of this idea in popular culture that I am aware of was in Kurt Vonnegaut's Slaughterhouse Five, where the hero (anti-hero?) Billy surprises his wife with a new Cadillac on her birthday. Ironically, she later ends up dying in the car due to carbon monoxide poisoning.

In the HBO Soap Opera The Sopranos, Tony surprises Carmella with a new Porsche Cayenne, to salve his guilt over having mistresses and also provide a neat product placement for a sponsor (Whoops! That's right. HBO is commercial-free. Riiiiiiight!).

As I have noted again and again in this blog, the media, specifically advertisers, like to promote as "normal", many personal economic ideas that are fraught with peril. Car makers would love it if you believed that buying your wife a car as a gift was a good idea and that she would love you forever for it.

The reality is, for most middle-class, upper middle-class and even wealthy Americans, the idea of buying something as personal as a car as a gift is a really, really bad idea. Taking aside the issue of whether she'll like the make, model, and color (would you want someone else to select your car for you?) buying a car as a gift is a fundamentally unsound financial proposition.

And if you think about it, if you take the joint marital assets and buy your wife a car as a gift, is that really a "gift" at all? After all, half that money (in most States) is hers. So far from buying a thoughtful gift, you are merely spending her money for her. How nice - and misogynist, too.

A husband and wife should work together on family finances and make major purchase decisions jointly. A husband who goes out and makes a major purchase such as an automobile, without consulting his spouse, is being irresponsible with their finances. A new car is a multi-year financial commitment in terms of payment, depreciation, and insurance. To buy one on a whim as a gift, well, most spouses I know would not be jumping for joy.

And for a spouse to be so unaware of the family finances that the husband can go out and purchase a car is also a scary scenario. Unfortunately, in many families, such is the case. In the old days - 50 years ago - it was not uncommon for a man to be the sole breadwinner and to "handle all the money" - giving the wife a weekly or monthly allowance to maintain the home.

However, in today's world, it is more common for both husband and wife to work or have careers, even at least part-time work. And regardless of whether both husband and wife work, managing money should be a joint effort and something done with mutual consultation. Managing money in such a scenario should be a joint effort, not a solo practice. And why not? Managing money is a difficult task. Two heads are better than one. So it pays to have someone to bounce ideas off of and to get feedback on financial management.

This is not to say that one person shouldn't balance the checkbook and keep records of purchases. In any relationship, one person will end up more inclined to do such things - it is an onerous chore. And trying to have two people balance the same checkbook is often difficult at best.

But the allocation of resources in a relationship should be a joint undertaking and something jointly discussed. Otherwise, a relationship quickly becomes a "race to the bottom" as each spouse tries to out-spend the other, sometimes in retaliatory acts of revenge. "He bought a new power tool! I'll show him! I'm buying a new pair of shoes!"

Such relationships do not last long, as each spouse looks at relationship in terms of "what am I getting out of this?" Financial difficulties inevitably follow and the recriminations start and pretty soon even more money is squandered in a divorce.

Think I am being dramatic? It actually happens. As I noted before, I once sold my motorcycle to a fellow who had just been divorced. He paid me full asking price, which sort of surprised me. When I asked him more about why he was buying it, he said, "I just got divorced and had to sell my Harley and my Corvette. So I'm buying another motorcycle and a Camaro. I'll show that bitch!"

He was desperate to show his ex-wife that he was not going to be cowed. He would still have a bike and a sports car, albeit not a Harley and a Corvette. I kind of felt sad for the guy, but was happy to take his money. I hope he realized there is more to life than buying things in an act of revenge.

Making a major financial decision such as buying a car should be something that is carefully discussed and debated between you and your spouse. You should research it carefully and make a wise investment decision. Impulse purchasing a major appliance like this is never a good idea. While it may be thrilling to buy a new car, it is a much smarter deal to buy a 2-3 year old used car. Working together toward a common financial goal and financial future is far more rewarding than impulse-spending to try to win approval.

And please, don't tell me "you can afford it". Unless you are mega-wealthy, you can't. The average suburban Joe, even if he is making $100,000 a year or more, can't afford to be that lax with money.

The idea of a new car as a gift has a corollary in the concept of the new car as memorial. Increasingly, we are seeing cars, trucks, and SUV's with carefully crafted stickers on the back proclaiming that the vehicle in question is "In Memory Of" a deceased loved one. I am not sure how this concept came about (perhaps the car was purchased with the life insurance money or accident settlement?) but it is pretty tacky.

To begin with, a car is a transitory thing. As a long-term form of remembrance, using a car as tombstone seems somewhat odd. I saw one such vehicle the other day, with "In Memory of Joe Blatz, Loving Brother" neatly decal-ed on the rear window. Next to that was a sign saying "FOR SALE".

This begs the question (or questions) as to whether the new owner is to maintain the truck as a permanent memorial to old Joe, or whether Joe's brother will summarily scrape off his memorial when selling the truck. Will the next truck have a similar memorial? What is the protocol on this? Does one have to perpetually have memorial stickers for family members on all cars, or only until you sell or trade-in the vehicle? I don't fully understand these newfangled traditions.

Here's the deal. Cars are just things. Expensive things. And they can cost 2-3 times more than they should if you are buying them brand new and then trading them every 2-3 years. Buying your wife a car as a gift is not going to make you the hero of the family, particularly when the car payments mean that some other expense (such as funding your retirement) goes unpaid.

More than three-quarters of martial difficulties can be traced to money problems. But money problems need not be a force that divides a couple. Working together to overcome financial difficulties and to plan together to work toward a financial future can be a force to bind a couple together against the odds. It is all a matter of choice - your choice.

And please, please, do not memorialize me on the back of some pickup truck or SUV. I don't even want a headstone, much less something as tacky as that.

Saturday, November 28, 2009

I realize this posting is probably too late for this holiday season, but perhaps it may be useful to readers contemplating going to the mall this weekend - or next holiday season.

As I noted in my Demilitarizing Christmas Posting, the entire concept of the Christmas Holidays has been hijacked by commercial interests. I will leave it to the religious sorts to make the faith arguments. I am only concerned here with the financial ones.

As I have noted before, following the herd of cattle to the slaughterhouse, the lemmings over the cliff, the sheep to the butcher, is never a sound idea. Doing what everyone else is doing is sometimes a good idea - but more often than not is fraught with peril. When someone says (figuratively) "Hey everybody, let's all do THIS!" then you should probably think about quietly slipping away.

Nowhere is this more true that with the media's hyped stories about "Black Friday". Today, they interviewed a doe-eyed mouth-breather at some chain store about the "incredible bargains" on "Black Friday". The mouth-breather in question had waited up all night to be first in line to buy a small flat-screen television for an apparently bargain price. The interesting thing was that the television was not a purchase as a gift, but for himself. And the price mentioned by the interviewer did not seem to me to be all that great.

As other media outlets have noted, many of the "Black Friday Bargains" are limited to a few items per store. Thus, they are usually sold out by 6 AM when the stores open (or earlier, more on that later) and when you arrive at 9 AM there are no bargains to be had. Also, many of these "bargain" items, particularly in electronics, are stripped-down versions or specially made units that may not have the quality, resolution, or features that the regular unit has.

Being herded and stampeded into buying something on the premise that "the price is only good for today" is never a good idea. If someone can get you to impulse buy, without thinking too carefully, they can pull a fast one on you.

Here's a clue: Consumer electronics, historically, have dropped in price from year to year, as the cost of production drops, manufacturing efficiencies are implemented, and more competition drives down prices. If you wait a week or two - or a month, or a year - to make a purchase on a television, stereo, computer, or whatever, chances are the price will be about the same, if not lower. There is no incentive or imperative to "buy now" in this segment of the market.

The other humorous part of the "Black Friday" story was when the interviewer asked the mouth-breather whether he had thought about buying any of the $3 small appliances being offered this year (toasters, crock pots, coffee makers, etc.). He replied, "Maybe I'll get one for my Mom".

Here you are Mom, Merry Christmas. Here's a cheap-ass toaster. Enjoy.

$3 or not, if you don't need a new toaster or crock pot, why buy one? And how well made do you think such appliances are? Is this something you will have for many years, or will it be clogging some landfill before the year is out. As even Wal-Mart is learning, people really don't want things that are so cheap that they are broken before you leave the parking lot.

And even at "bargain" prices, the average Christmas shopper ends up putting all this stuff on a credit card, which, thanks to the miracle of Revolving Interest, means that they will pay for the purchase two or three times over.

I alluded to earlier that many stores are opening earlier and earlier on "Black Friday". Many are open at midnight. This year, many cut to the chase and opened on Thanksgiving (why not? There is little else to do that day other than watch football). People camp out overnight to snap up the five or less "bargain" flat screen televisions offered at the local Wal-Mart or whatever.

As was widely publicized, last year, a temporary worker was trampled to death at a Wal-Mart on "Black Friday" as eager shoppers tried to snap up the alleged bargins the minute the store doors opened. One can only imagine what Christmas is like for that young man's family since then. The idea that someone should get killed over a flat-screen television is appalling enough, but when placed in the context of the season, doubly so. Jesus would be pissed.

The incident, and many similar to it, serve to illustrate how sick our society has become and how sick the media has been, to hype and promote this sort of "group think". As I noted in the beginning of the article, when someone (particulary in the media) says "Hey, Everybody, let's all do THIS!" chances are whatever it is they are hyping is really a sour deal.

If the idea of fighting crowds on the second-busiest shopping day of the year strikes you as a good time, go for it. But don't kid yourself that you are snapping up any "bargains". And as I noted in my Demilitarizing Christmas Posting, buying people expensive and/or useless gifts because the media (and commercial interests) say you should is a pretty dumb idea.

Gift giving comes from the heart and should be spontaneous and fun. "Exchanging" gifts and carefully evaluating their worth is not gift-giving but a very lame form of involuntary bartering.

I already have a toaster and coffee maker, thanks. And if I need a $3 crock pot, I know where to get one. If you want to bring me a gift, bring a bottle of wine and help me drink it. Otherwise, don't feel obligated to buy me anything. And I won't feel obligated to buy you anything either.

And together, we'll stick it to the Christmas Industry and the minions who hype it.

Wednesday, November 25, 2009

Our tax laws have changed over the years to encourage incurring indebtedness. The tax break for home mortgage interest served only to increase the cost of homes (while keeping the effective monthly cost the same).

Let me illustrate this last statement with an example. In a rational Real Estate market, the cost of renting a dwelling is usually higher than the monthly carrying cost. Otherwise, landlords would not make any money.

So for example, if you can rent a home for $1000 a month, the cost of taxes, insurance, and mortgage should be no more than $1000 a month. Say the taxes and insurance are $200 a month and prevailing Mortgage Interest rates are 9%. Doing the math, this means the purchase price of the home should be no more $100,000 as the mortgage on such an amount would be about $800 a month on a 30-year mortgage.

Note that if interest rates go UP, the amount of the purchase price will go DOWN - and vice-versa. The housing "boom" of the 1990's and 2000's can be explained in part as a result of lowering interest rates over time. It is a simple cause-and-effect see-saw and anyone who tries to tell you otherwise (and there are legions of "analysts" who claim that interest rates do not affect home prices) is being disingenuous.

Note also that if property taxes and insurance skyrocket, as they did in South Florida in the 2000's, that the value of the property will also drop, if the monthly carrying cost is to remain the same.

Again, market rents are determined by market rates, not by the carrying costs of the landlords. And again, there are those who claim otherwise, and they are either fools or liars.

But getting back to our example, suppose the government passes a law saying that mortgage interest is deductible? What happens? Well since the buyer gets back nearly 25% of that interest on their taxes, and most of the initial payments are interest, that means the monthly payment is effectively $250 lower. Which means for our monthly $1000 carrying cost, the homeowner can "afford" to pay $120,000 for the house.

So playing games with taxes and incentives does little more than affect prices. People will pay the most they can "afford" in the marketplace for a home, provided it is not more than the cost of renting a similar home. Home prices are not a function of construction costs, but a function of what people can afford, which is a function of the various elements affecting the overall monthly cost.

Similarly, the mortgage term affects price. 50 years ago, most mortgages had terms of 15 years or less. Since monthly payments were higher, not surprisingly, houses cost less (even taking intervening inflation into account). 50 years before then, when long term home loans were virtually unheard of, prices were even further reduced.

So what home prices are is often determined by things other than the underlying "value" of the land (which is a nebulous term anyway). What something is worth is what people are willing to pay for it.

In most housing markets, what people are willing to pay for property is a function of supply, demand, and also income. If you live in a rural area where incomes are low, and land is plentiful, then property values will be cheap. On the other hand in an urban area, where people have high incomes and all the land is built on, prices will be higher.

But even then, the law of supply and demands has its limits. And that limit is monthly cost. If Joe Paycheck can afford to pay $2000 a month for a house, he will buy a house than costs $2000 a month.

But what that means is, if the taxes are $200 a month, the insurance is $100 a month, then he only has $1800 a month to spend on mortgage principle and interest. What this equates to in terms of home price (at 10% down) in turn, is determined by mortgage interest rates.

So if rates are at 7%, he can borrow about $275,000. But if rates are at 5%, he can borrow nearly $325,000. So if he is bidding on a house in a climbing market, and can afford $1800 a month in payments, he may be willing to go higher.

So you see, there are a number of factors that drive housing prices, not just "supply and demand" - although that has a huge effect in some markets, such as Las Vegas and South Florida, today, where the number of homes greatly exceeds demand.

But overall, affordability drives prices. Everyone would like to own a home - if that can afford it. So prices will drop until a home is affordable. No home sits empty for lack of a buyer - for long.

Note that the other costs mentioned - insurance and taxes, can also affect prices, as they reduce the amount of money from the monthly payment that the owner can "afford" that is applied to P&I. If insurance and taxes skyrocket, the price of the property may plummet. And this also goes true especially for Condo Fees.

So, to summarize, there are a number of factors affecting home pricing:

As interest rates go up, home prices go down.

As taxes go up, home prices go down

As insurance goes up, home prices go down

As condo fees go up, home prices go down.

In South Florida, we had a near-perfect storm in this regard, and I am not talking about the Hurricanes (although they helped). In addition to overbuilding (law of supply and demand, again, increasing the supply), the insurance rates in many places skyrocketed after several devastating hurricanes hit the area. This made it harder to sell houses in the area, as they were more costly to own. Suddenly, hurricane, flood, and homeowners policies were costing thousands of dollars a year.

And with the rise in prices, the local municipalities decided to jack up the property taxes. Since many older homeowners were "homesteaded", newer buyers, and out-of-town investors were socked with astronomical tax bills.

In many older Condos, investors and developers cut the condo fees to attract buyers. Once the investors and developers sold out, the Condo boards discovered they were nearly broke, and the buildings needed much deferred maintenance. So fees were jacked, and worse, special assessments levied.

And many folks bought properties based on adjustable rate mortgages with no docs and "teaser" rates that jacked way up. So once interest rates went up, they were literally priced out of their homes.

The Real Estate market went completely out of whack. A simple condo that might rent for $1200 a month would cost $4000 a month to own. It simply didn't make any sense. And of course, eventually, the market collapsed.

Today, we are faced with similar problems. Interest rates are being kept artificially low, for the time being. But many municipalities are jacking tax rates to cover deficits. And homeowners insurance in many coastal areas continues to climb.

If interest rates start to rise, they will dampen any increases in home prices, and perhaps even cause home prices to drop.

Because, bottom line, if no one can afford the monthly payments, your house doesn't get sold, period.

If you find yourself in a pile of debt, or with a high balance on a credit card with a high interest rate, the Credit Card balance transfer may look appealing. In this current economy, people are finding themselves in a pinch, financially, and credit card balance transfer offers look awfully appealing as a way out of trouble.

Should you transfer high balance and high interest debt to a credit card? In most cases, the answer is NO. In some situations, they may provide temporary relief. But if not handled properly, they can end up throwing gasoline on the fire of debt, or merely transfer perpetual debt to a new provider.

There are many things you should be aware of before attempting such transfers.

To begin with, it is wholeheartedly foolish to transfer ordinary debt at a low interest rate (or no interest rate) to a credit card to "consolidate debt" or some such nonsense. The idea that keeping track of multiple debts is somehow "difficult" is nonsense, particularly in this computer age. If you have debts that have no effective interest or low interest rates, it is smarter to just pay these off than to waste time and money "consolidating" debts for convenience only.

If you owe money to a creditor who does not charge interest, then it makes more sense to pay them off in monthly installments than to put that debt on a credit card. For example, we had an unexpected $1200 medical bill for a CAT scan. Rather than put that on a credit card and make payments for years (and pay nearly twice the debt in interest) a simple call to the medical care provider was all that was needed to pay off the debt in six monthly payments of $200 each. If you are hard up for cash, by the way, it never hurts to ask for a discount as well. Medical bills, like legal bills, are highly elastic.

But let's assume you have $5000 in debt, on a credit card or other high-interest loan, such as 15% or more (some can go as high as 30%!). Does it make sense to transfer this to a credit card with a "zero percent balance transfer"? Before you make a decision, understand the benefits and the pitfalls.

The pitfalls are numerous:

1. Transfer fee: Usually the credit card company charges you a transfer fee of 3-7% of the balance. For a $5000 debit, at 5%, this could be $250 right off the bat. Of course, if you left the money in the old account, you'd accrue at least $750 in annual interest charges, so even with the transfer fee, you might end up saving money in interest - provided you don't accrue other interest payments.

2. Base Rate after Trial Period: Usually these zero percent (or reduced percentage rate) transfer offers are only good for a period from six to twelve months. After that, the interest rate on the balance may go up to another amount. If this default amount is higher than your existing rate, or close enough to it (taking into account the transfer fee), it makes no sense to transfer a balance. Note that some cards (Discover, for example) will keep your balance transfer at 0% provided you use the card for new purchases (e.g., twice a month, or a minimum purchase) but there is a catch to that as well, as we shall see.

3. Purchase Rate on New Purchases: If the purchase rate on new purchases is high, you can end up paying more interest over time if you use the card for new purchases, due to the nature of revolving credit. For example, suppose you "roll over" the $5000 into a zero percent interest transfer on a new card with a 10% interest rate. You make a $200 a month payment on the card, but you use the card to make $100 a month in charges to restaurants, gas stations, etc. Each monthly payment is applied to the balance transfer FIRST, and the new charges on your card accumulate interest at 10% every month (every day, actually, but that's more complicated that we need discuss here). Until you pay off that $5000 balance transfer, not a penny of new purchases is paid for.

Thus, in our example, if you pay $200 a month on this $5000 balance transfer, you will pay off the balance transfer in 25 months, or a little over two years. In the meantime, you have accumulated $2500 in new debt, that each month accumulates 10% interest over thsoe same 25 months. Pretty soon you may be back where you started - with a credit card with a perpetual balance with a fairly high interest rate.

Understanding the nature of revolving credit, you now understand why Discover and others want you to USE the card for new charges, as each new charge gets piled onto the top of the payment list, and is paid off last, with the most interest accumulated.

The transfer fees, interest rates and other terms will vary from lender to lender. The better your credit history is, the better the terms you will be able to negotiate.

Using balance transfers is like juggling hand grenades. It can be done, but it is tricky and if you drop one, well, bad things will happen. A balance transfer can make sense under certain limited conditions:

1. You have a super high interest rate credit card: If you find yourself paying 25% interest or more, it may be nearly impossible to ever get out from under such debt. You will pay more in interest than you do in loan balance. In these situations, even with transfer fees, you may do better with a balance transfer.

2. The balance transfer is for 0% or low rate (2.9%) for the life of the balance or a long time: A balance transfer that provides interest relief for only a few months is usually no bargain, as it does little to reduce your interest debt load. Negotiate for the longest period possible and also contact multiple credit card agencies.

3. The baseline interest rate is low: If the regular purchase rate on the card is high, or the standard rate (that the balance transfer will default to after the trial period) is high, you are no better off than before. If your credit rating is good, you should be able to get an interest rate below the current average rates - preferably something under 10% at the time of this writing.

4. You do not make purchases (or many purchases) on the card: As noted above, some cards will keep the transfer rate at 0% provided you make additional purchases. If you limit those additional purchases to just enough to keep the transfer rate at 0%, then this could be a strategic move, provided the purchase APR is low or reasonable. Otherwise, you will end up racking up more debt at high rate and be back where you started.

5. You have a PLAN to get rid of the debt, not perpetuate it: The Credit Card companies are not your friend, and they want you to keep increasing your debt load (or at least maintaining it) over time. It takes some time to get into debt, and getting out of it is not easy. If you are using a balance transfer, it should be part of a strategic plan to pay down your debt over time with the idea of being debt-free as the achievable goal.

6. You setup AUTOPAY on your account: If you do not make the minimum monthly payment on your accounts by the due date, your interest rate may skyrocket on your new account. It pays to setup an autopay on your account so the minimum monthly payment is made to your account every month on time. Otherwise, if a payment is lost in the mail, or you forget to make a payment - even for one month, you will end up being "late" on a payment and the "default" interest rate (usually 25% or more) will kick in.

Credit Card companies prey upon human weaknesses - the urges we have to have something now and pay for it later. They also prey upon our weakness to be lazy about money and not pay attention to payment due dates, etc.

When you get a credit card, you are playing a game where they write the rules, and all the rules are not in your favor. Balance transfers are particularly tricky, and if not monitored closely, can end up leaving you worse off than where you were before.

If you have good credit, paying off a debt through other means may be a better approach. However, paying off one loan with another is often a process fraught with peril. As I noted in an earlier post, one reason the country is in the trouble it is in, is that many folks in the 1990's and 2000's ran up credit card debt and then used home equity loans to pay it off. They went out and ran up more credit card debt again, and repeated the process until there was no equity left in their homes.

As I will discuss in my next posting, being DEBT-FREE is a better approach to financial health over the long term.

Tuesday, November 24, 2009

There are many websites, books, seminars and financial gurus out there who promote the idea of being debt-free. Is this a good idea or not? Should you structure your entire financial planning to focus on reducing debt, or increasing savings?

The answer, like much in life, is "it depends". It depends on your income, marital status, age, and your goals and plans. Debt can be, at some points in your life, necessary. But there does reach a point where you should be out of debt, or at least have your debts reduced.

We are born without debt, and die the same way. It is the middle part of life where it gets tricky.

Acquiring debt should be something that is carefully thought out -with a strategy that goes beyond "I can afford the monthly payments". As I have noted before, the monthly payment approach to finances is fraught with peril, particularly when monthly income declines or evaporates.

But should you be debt-free? The financial advisers seem split on this.

The debt-free advisers (which I subscribe to more) point out that when you are retired, you don't want to have the need for a steady cash flow to pay for housing, transportation, and other living expenses. If you can "pay as you go" then you can save your capital for major expenses such as illnesses or assisted living. At some point in life, if you live long enough, you may need to enter assisted living, and have a "paid for" house to sell may make the difference between spending your final years in comfort, or in the State home.

The have-debt advisers (whcih I subscribe to less) argue that having some debt is a good thing, as there is an "opportunity cost" to paying down debt. For example, paying down your mortgage early (doubling payments, switching to a 15-year payoff, etc.) may save you a lot of money in interest payments. However since mortgage interest is relatively low (5% at the time of this writing) and you do get a tax deduction for such interest, it may be a better bet to put that extra money into savings, specifically your 401(k) where it may earn better than 5% in returns and also provide a tax deduction.

So which advisers are right? Should you be debt-free or have some debt? Is it better to pay down debt or use that money to invest?

Well, both are right, in my opinion.

In my view, as an overall goal in life, one should strive to be debt-free by the time of retirement - no car payments, no credit card payments, no mortgage payments. Granted, when starting out in life, it may be necessary to borrow money for student loans, to buy that first car (secondhand, hopefully, using your credit union) and to buy your home. Debt, to some extant, cannot be totally avoided. The key is to minimize debt and avoid "stupid debt" such as credit card debt, consumer financing, and the debt for things you don't really need or can buy secondhand for cash (hot tubs, pool tables, jet skiis, etc.).

By age 40, you should have paid off your student loans, and be in a situation where you don't have car payments anymore. It can be done, if you work toward it. At that point in life, you should have only mortgage debt, which is interest-deductible. During that last 20-25 years toward retirement, retiring this debt as well should be the goal.

By paying down high-interest rate debts first, you are saving the largest chunk of money. Not taking on additional debts (car payments, credit card debt, etc.) is the second step. Eventually, the only debt you should have is home mortgage debt.

Now granted, it is true that you might do better "in the market" investing money rather than paying down debt. However, as we age, we should put more money into safer investments. One rule of thumb (and I generally dislike rules of thumb, but I like this one) is that as you age, the percentage of investments in "safe" investments should reflect your age.

Thus, at age 25, 25% should be in insured accounts or safe bonds. At age 50 - 50%. At age 75 - 75%, etc. One safe investment, in my opinion, is the home you live in, provided you did not overpay for it in one of these bubbles. Now that the dust has settled in the Real Estate market, people are starting to pull back from their earlier panic modes and realizing that in the majority of the country, Real Estate prices are about where they were in 2005 or so. That means that the last few years of "crazy" gains are gone. But over the long haul, Real Estate has been a safe investment for most folks.

Real Estate prices may fluctuate over time, but a home you lived in for 10, 15, or 20 years is not going to drop to zero in value any time soon. Chances are, it will hold its value and gradually increase over time. Owning Real Estate outright is not a bad idea, when you are retired.

So yes, paying down Mortgage debt as you approach retirement is a good idea, as it will significantly decrease your cash-flow needs in retirement, and provide you with a "safe" place to live and a relatively safe investment.

Paying down mortgage debt when you are young, on the other hand, may make less sense, particularly if you are carrying higher-interest-rate debts such as car loans or credit card debt. It also may make less sense if you are not making the full contribution to your 401(k). Even with the current downturn in the market, the returns on most 401(k) accounts have exceeded 5%, often 10%. With the tax deductions available, the effective rate of return is even higher. Putting money aside when you are young has the additional effect of allow you to use TIME as your friend, as money compounding in interest over time will add up to a tidy sum by the time you are retired.

In addition, you will need money when you are retired. If you pay off your mortgage early, you will need to put even more money into retirement accounts, to make up for the lost time in investing. You can't eat a house. If you retire with a "paid for" house and no cash, life will be tough.

My personal goal is to be debt free before I am 60. In that manner, I can live a relaxing retirement, not having to worry about making money to pay for mortgage payments, car payments or other monthly expenses. By limiting my cash-flow needs, I will have a flexible retirement and be able to do things without having to run through my retirement capital.

Sunday, November 22, 2009

Above: One of my 1997 BMW convertibles. Although it is worth only a few thousand dollars, it is in nearly like-new condition and will provide many more miles of good service, in style, before wearing out. Garaging it and taking care of it and not beating on it are the keys to keeping a car longer.This car is 13 years old.

I have commented before on bad driving habits and how that can prematurely wear your car out. Yet many people have horrible driving habits and don't really even know it.

How long a car lasts is a direct function of how you drive it. And how you drive also affects how often you get in an accident, or get a ticket, which directly affects your insurance rates. So the cost of driving a car is a direct function of your driving habits.

Most of us learn our driving habits from our Parents or our peers. My parents had horrible driving habits. They tailgated, they accelerated too quickly, they braked too late, they sped, you name it. And when it came to car care, they were barely able to put gasoline in the car, much less wash and wax it. Not surprisingly, they tended to go through cars at a rapid clip.

How you drive affects how much it costs to drive. Here are some tips on cutting your car expenses simply by changing the way you drive:

1. Anticipate Stops: When driving, you should be looking as far down the road as possible, to anticipate what will happen next (will that car pull out of the side road? Will that light change to red?). When you see a stop sign or a red light (or a "stale green" - a light about to change), take your foot off the accelerator and slow down gradually.

Many folks continue to accelerate all the way up to a stoplight, applying the brakes only a few feet from the stop line. This wears on your car in a number of ways and costs money. To begin with, you are wasting gas, adding kinetic energy to the car, only to convert it to heat with the brakes moments later. You are not saving any time, either, as a red light is a red light, and the car that you passed on the way to the red light (me) will surely meet you there.

The life of your brake system can be severely shortened by driving this way. By anticipating stops, you can increase brake life two, three, four, or more times. And sudden intense braking generates intense heat that does damage to more than just brake pads - it can warp rotors and cause calipers to get hot and corrode. Even suspension components such as control arm bushings and the like are worn by such sudden and severe pressure.

A special note to Hybrid Drivers: Decelerating gently will allow your hybrid system to convert that kinetic energy back into electricity and recharge your batteries. However, the system can only absorb so much energy at a time using "regenerative braking". If you make sudden stops, the service brakes have to take up the slack, converting that kinetic energy into heat. If you drive a Prius this way, you are really missing the point of what the car is about.

2. Mashing the Accelerator: When the light turns green, many folks immediately smash down on the accelerator. This is a bad idea for three reasons.

The first is fuel economy. Acceleration uses the most amount of fuel in any car, so rapidly accelerating often uses more fuel, particularly when you are going to just stop at the next light a block or two ahead.

Second, the acceleration from 0-5 mph puts the most stress on the driveline, as the car has to launch 4,000 lbs of metal from a dead standstill. Drag racing your car will cause extra wear and tear on your transmission and driveline over time. If you want to keep the car for a long time, be gentle with it.

Third, launching from a stoplight is more likely to get you into an accident. People run red lights (or stale yellows) more than ever before (or run stop signs). Before you hammer the throttle, take a second to look both ways to make sure some yahoo isn't speeding toward you. It's called defensive driving and its a good idea to practice.

3. Tailgating: This is the worst habit in the world, as it wears on your brakes and your nerves, as you try to be hyper-alert while drafting the car ahead of you. One moment's inattention and BAM! You are in an accident and at fault.

Trying to match speed with a car ahead, accelerating and braking constantly, also consumes a lot of gas.

It is not hard to spot a tailgater's car- the front end is chipped and pitted by rocks thrown up from cars ahead. Tailgating literally destroys a paint job. Surprisingly, many folks will tailgate trucks, including salt trucks or even construction trucks spewing gravel and dirt. Either pass them or fall back.

As you know, for any given speed, you should leave at least three seconds space between you and the car ahead. Watch the car ahead pass a signpost and count "One one-thousand, Two, one-thousand, Three one-thousand". If you pass the sign post before then, you are tailgating.

Note: When buying a used car, look at the nose for signs of rock chips and scratches. A tailgaters car will look like it was blasted with a shotgun. Generally speaking, such cars should be avoided, if there are other, more gently driven examples available for the same price.

4. Speeding: By this, I don't mean doing 5 mph over the limit. To some extent, everyone speeds a bit. But the key word here is "a bit". Trying to drive 80 mph by weaving in and out of 70 mph traffic is just annoying the snot out of everyone.

And as you try to accelerate and then have to brake suddenly, you'll wear on your brakes and waste a lot of gas.

And you won't get there any faster. I learned this driving our motor home. We'd put along at 65 mph or so and some yahoo would zip by at 80, only to jam on his brakes because he sees a car in the median and thinks its a cop. After a few miles of this nervous driving, they have to pull over for a break, as they are emotionally exhausted. Meanwhile, our motor home putts by at 65 and a half-hour later, the same yahoo zips by me again. Repeat ad infinitium.

It is true what they say in defensive driving classes - you can't "make up time"on the road, and going a few mph faster won't save very much time. You might save a few minutes, tops, even on a trip of several hours. It just ain't worth it. The time saved going 10 mph over the speed limit is negligible, compared to the money cost in gas, wear, and tickets.

Fuel consumption goes up exponentially with speed. Doing 80 can use 40% more fuel than going 65, even though the change in speed is around 20%.

And then there are the tickets. Get two or three and see your insurance go from $1000 a year to $4000 a year in a real hurry.

Driving a high performance car is fun, but save the spirited driving for special occasions - the right time and place. Driving like a maniac all the time accomplishes little except to help impoverish you further.

5. Slamming Doors, etc. Many folks treat their cars like crap. They windup and slam the doors like they are major league pitchers. Not only does this wear on hinges, latches, etc., but also can cause rattles to form in interior door parts, work trim loose and even break window regulators and other parts. Determine how much force is needed to close you car door and apply no more. The good old American car door slam is not good for your car.

Similarly, many people, when sitting in a car, will crouch down to about 2 feet above the seat, and then let go, allowing gravity to do the rest. The result is a major impact to the lower seat cushion, which wears and compresses the seat cushion prematurely. Not only is this bad for the car, it is bad for your spine. Sit down carefully in a car, and don't "rub" against the upholstery. Avoid riveted pocket jeans and other sharp implements which can tear even leather.

6. Scratching the Paint: Many folks treat the paint on their cars horribly - placing items on the hood or trunk lid, such as bags of groceries, and allowing them to slide off or dragging them across the car. Such actions cause minute scratches in the paint, which over time will make the car look awful and in turn motivate you to trade it in.

Similarly, door dings and the like can largely be avoided if you open and close doors carefully. Pushing against the door with your feet leaves marks on the inside and then flings the door open against its hinge stops (often weakening the hinge) or impacts the door into an adjacent car, light pole, or other obstruction.

7. Parking Outside: Parking an car outside destroys the exterior and interior. The paint will fade more quickly and be subject to acid rain, dirt and debris. The interior will bake in the sun and fade the dashboard and other interior parts. The headliner glue will soften and cause it to fall. Leaks - even minor ones, will allow water to enter and fester, causing a funky mildew smell.

Any car will last twice as long if it is regularly garaged. If you do not have a garage and cannot afford one, then there is little you can do, other than to buy an inexpensive car and live with the wear and tear. But many Americans have large 2 or 3 car garages full of boxes of junk, and they will park a $50,000 car out in the sun, wind, rain, and snow. Get your priorities straight and throw away the boxes of "stuff" (or sell them in a garage sale) and put that valuable car under cover.

8. Kids: Many parents will sigh and say "well the kids, they are so hard on the car!" and it is true, that children, if not trained, will open car doors with their feet, smashing the door into an adjacent car. They will scratch and pick at interior bits and break off parts of the car. They will climb on a car with dirty shoes and put deep gouges in the paint. All of this is true - if you let your kids do these things. Get your children started early in learning to respect machinery. We live in a technological world and rely on technology in our daily lives. Disrespecting your car is not something that happens spontaneously - it only happens if you let it.

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These are just a few suggestions as to how to treat a car in a manner designed to make it last a good long time. Most of my cars are over 10 years old, and people are shocked to discover that they are that old. Many folks assume they are new or late model cars.

Treat your car like the delicate plastic consumer good that it is. Intentionally beating on your car and wondering why it looks like crap after two or three years is not very cost-effective.

How you treat a car has a direct effect on how long it will last and how long you will want to keep it. Once a car looks dirty, dinged, dented, scratched, and beat up, you'll be more inclined to sell or trade it the first time it needs even a minor repair. A good looking car, on the other hand, will seem more worthwhile to keep.

Saturday, November 21, 2009

When I started this blog, I stated that I would not be talking about silly things like how to re-use pocket lint. Hints from Heloise and others have pretty much covered that waterfront.

Nevertheless, here are some money-saving tips I have come up with in the last few years, that save hundreds of dollars a year, literally - if not thousands.

1. Haircuts: If you are a woman, this is a very difficult and expensive personal item, and it can be hard to find alternatives, as workplace pressures and job expectations may require you to spend quite a large amount of money on hair care and clothing. A man can make do with a buzz cut and three suits, but a woman needs styling and a wardrobe. It ain't fair.

For men, however, hairstyles today are very short and even. I waited at the local barber the other day for over an hour, forced to listen to Rush Limbaugh blather on, on the barbershop's radio. My partner took his turn in the chair. The barber set the electric clippers to #2 and ran it over his head. 5 minutes later he was done. That will be $15 please, plus tip. What a waste of time and money. Multiply that times 52 weeks in the year, and you're looking at $1040 in haircuts. Times two people, that's $2080. Not chump change!

As an experiment, we bought a $20 rechargeable clipper set from Bed, Bath, & Beyond. Sitting out the back yard, we set the comb attachment at #2 and ran it over his head. In five minutes, we had performed the same haircut as the barber did. I took my turn in the chair next, and voila, instant haircut. The unit paid for itself twice over the first day.

All summer long we took turns giving each other "Prison Haircuts". The nice thing is, you can cut your hair when and where you want to - and as often as you want to. Rather than looking worse than having gone to the barber (where you may be tempted to save money by going less often), your hair ends up looking more trim and neat.

This Fall we went back to Bed Bath, & Beyond and bought a $29 Wahl electric clipper, 110 volts, like the real barbers use. Again, it pays for itself after the first cut.

By the way, be sure to use those $5, $10 or 10% off coupons at Bed, Bath, & Beyond. And bear in mind that many stores will give you the discount retroactively if you forget to bring the coupons. Just bring your receipt back and ask them to process it. No one pays full retail there, if they can help it.

Net savings in haircuts over a year: well over $1000. I'll miss hearing the latest from Rush, however.

2. Soap: Even if you shop at one of those "big box" stores, the price of soaps and detergents can be staggering. When we run out of this expensive item, we usually go to the large discount stores to re-stock. Buying laundry soap, dish soap, dishwasher soap, shampoos and personal soaps, car wash soap, de-greasers and cleaners, (Simple Green, Clorox spray) can add up to hundreds of dollars just in one shopping trip. Over a period of a year, you may easily spend more than $1000 in soap alone. It is staggering.

There are several ways to save on soap and detergent costs. To begin with, use the correct amount for all applications. It is temping to think that if you put "a little extra" in the dishwasher or laundry machine that the dishes or clothes will get cleaner. However, as we learned in chemistry class, once the soap reaches a saturation point, additional soap in the solution does not equate to additional cleanliness. In fact, it may end up leaving a soap film or residue on your dishes or clothes. Use the proper amount, no more. If you add 50% more detergent to a load of laundry or dishes, you are adding 50% to your detergent cost, which as I noted is already a staggering amount.

Second, avoid high-priced packaging. Dishwasher detergent is now being sold in capsules and tubes, and liquids and all sorts of "convenient" packaging, as if dispensing a small amount of powder is "too much hassle" for the average American. If you read the prices and cost per ounce (or cost per load, more about that later) you'll realize that those "convenient" liquids or capsules cost 3 to 4 times as much as the traditional powered kind. And in many instances, they don't work as well. We tried the liquid dishwasher detergent and found it didn't dissolve as well as the powered kind.

Third, it goes without saying that brand loyalty makes no sense. Detergent is detergent. The idea that one is better than another is pure bunk. Shop on price, not brand name. Store brands or generics are often the best value. Name brands touted as having "extra cleaning power" really do no better, and often the "secret" ingredient is merely bleach.

Fourth, compare detergents on the basis of cost per loads. Many modern detergents are concentrated. For years, the detergent industry sold us mostly water. You can now buy large dispensers which dispense concentrated detergent, usually through a tap, into a supplied measuring cup. When comparing prices, the "cost per ounce" numbers that the store provides are usually meaningless. You have to see how many loads each brand or bottle does, and then calculate the cost per load and compare. With concentrated detergents, it is particularly important to use that measuring cup when dispensing detergent. Many folks take the jug and just pour soap into the machine, guesstimating at the correct amount. In many instances, they are putting in 2, 3, or even 4 times as much detergent as necessary. For a $30 bottle of soap, this is a total waste.

Many soaps are over-concentrated, which also results in wastage, as the soap never fully dissolves. Like many Americans, we like to use liquid hand soaps to wash out hands. If you buy a dispenser bottle of this stuff, it usually comes out with a consistency of glue. As you try to get a lather going under the sink, globs of it fall off and go down the drain, serving no purpose and doing little in the way of good.

And by the way, buying the soap in individual dispensers and then throwing them away is a very costly way to buy soap, not to mention wasteful to the environment.

I have found that the foaming dispensers, usually sold by Dial, are the best for washing your hands. The soap comes out in an aerated foam which quickly dissolves in water, and makes for a quick lather. These can be easily re-filled using bulk bottles of hand or dish soap (available at any big box store) but they will not "foam" unless the solution is diluted two or three times. Diluting many liquid soaps can make them last longer and make them easier to use. Soaps that squirt out in globs often end up going down the drain without doing much in the way of cleaning.

3. Water: Americans drink more water than ever before. When I was a kid in the 1960's, we never had bottled water. Maybe we'd get a drink at a drinking fountain, but that was about it. In the 1980's, Americans started to embrace the European custom of drinking bottled water. Today, drinking fountains hardly exist, and every gas station is happy to sell you 12 ounces of water for $1. It is the biggest scam going.

We found ourselves sucked into this like most Americans. We'd go to the store and buy cases of bottled water, and cases of carbonated water as well. It was a preferred beverage, and instead of pouring a glass from the sink, we'd open up a plastic bottle, drink it, and then add the empty plastic bottle to our recycling bin, or worse, into the trash.

When the economy went downhill, we needed to tighten our budget. Bottled water was one area where we were spending hundreds of dollars a year - perhaps over a thousand, for no apparent reason at all.

Most modern American refrigerators with "ice through the door" or the like, also dispense chilled water. And most of these have a built-in water filter for the water and ice. We found that there was little difference in taste and quality between the water from the refrigerator and the bottled water from the store (some would also argue that the plastic water bottles leach chemicals).

And rather than buying specialized containers (remember, you can't spend your way towards wealth) we found that we had sufficient water jugs, coolers, insulated mugs, etc. to hold water for traveling. Rather than stop at a gas station and buy a dollar's worth of water, we'd make it a habit to bring water with us - to the store, to the beach, wherever. Water from the tap is nearly free. The savings were huge.

And, by the way, we had largely stopped buying sodas before then, and stopped almost entirely afterwords. American soda pop now contains something called "high fructose corn syrup" instead of the cane sugar we grew up with (and still in use in the rest of the world). Many argue that this corn-derived chemical is responsible in part for our obesity epidemic, as it cannot be metabolized properly by the body. Yet many families buy cases and cases of the stuff every week, and wonder why their kids are chubby and have short attention spans. Regardless, paying a lot of money for a beverage that is hardly "refreshing" and makes you fat simply doesn't make sense. We cut back soda pop purchases to nearly zero.

4. Car Washes: As I noted in another entry, it is important to take care of your car, and washing it is part of that car care. Not only does washing the car make it last longer, the improved appearance of a clean car will make you want to hang onto it longer (and avoid the temptation to trade-in every 2-3 years). Yes, many people trade in a car simply because it is dirty.

The local car wash wanted nearly $15 for every wash, including the hot wax. This is a lot of money, and when the car wash is 20 miles away, not very convenient. We purchased a Karcher electric pressure sprayer (like a model K2.93)for less than $100. They make many models, but the basic model works fine for washing the average car. These are pretty decent pressure washers and can be used to wash a number of things around the home (if you are careful) such as your sidewalk, siding, deck, boat, etc.).

Just bear in mind that these are consumer-grade products and made of plastic. Treat them gently and they will last a long time. If you try to yank them around the yard by the hose, the plastic attachments will snap off and ruin the device. Leave them in your freezing garage over the winter and they will freeze and crack. Treat them like the piece of plastic they are, and they will last for years. And just get the basic model. They all have about the same pressure rating and use the same or similar motor. The upright ones with wheels and accessories are the ones more likely to break. The best one I've had has been the smallest unit, less than $100 at a local boating store.

These pressure sprayers have a soap inlet to allow you to spray low-pressure soap as well as water. I have found GEL GLOSS RV Wash & Wax, from Camper World, works well with the Karcher sprayer. Dilute the soap at least 50% with water, however (see above about dilution). Wet the car down with water, using the high pressure setting to loosen bugs and hardened dirt, then soap it (the Karcher sprays soap in low pressure mode and water in high pressure mode). Wipe down the car with a wet soft rag to loosen the soap, then rise. The Gel Gloss makes a hot-wax like shine that lasts for weeks.

For the cost of a few $15 washes, you can buy the pressure washer, which, if treated gently, will last for many years. A gallon jug of GEL GLOSS will last a year or more, depending on how many cars you have and how often you wash them. The pressure washer and the GEL GLOSS takes a lot of the labor out of car washing with a bucket and sponge, and the GEL GLOSS is a fine alternative to monthly wax jobs (I now wax my cars maybe once a year as a result).

5. Produce: Most grocery stores put the produce section up front, as they want you to start shopping there, fill your basket, before you think about how much you are buying. The problem is, a lot of fresh produce you buy ends up wilting or going bad before you can eat it. No one wants to eat a brown banana, but many end up going to the trash this way.

And because most of us are so cheap, we hate to throw away bad apples, brown bananas, fuzzy strawberries, and wilted lettuce. But you have to, it has gone bad.

One way to avoid this trap is to buy smaller amounts. In America, the shopping trip is a once-a-week experience for many, so we feel the need to "load up" on groceries. You are better off buying smaller amounts more often.

And trivial amounts? Hardly. Some produce, like berries, are staggeringly expensive. People buy a big container and then let it rot in the fridge. They want to "save" the expensive berries for a "special desert" but then never get around to it. So they turn green and fuzzy and before you know it, $10 of raspberries goes in the trash.

There are other ways to make some produce last longer. Lettuce can be washed and then stored in layers of damp paper towels and it will last longer and wilt less. Lemons and limes, kept in a zip-lock bag last weeks, compared to mere days in the crisper.

The lime thing has been a real money-saver. We like to keep these around for mixed drinks and the like, but they always seem to go bad. In a zip-lock bag, they last for 10 days or more!

6. PAPER TOWELS: These cost you more money than you think, and are of course utterly unnecessary. Get in the habit of using real towels to dry your hands and around the kitchen. We've been using these for thousands of years and they've worked well and can be sanitary if cleaned often and dried.

For cleaning windows and mirrors, old newspapers work better anyway. Of course, as newspapers die, I guess you'll have to use your Kindle, Sony Reader, or iPad. But until then, a crumpled-up newspaper does the best job of cleaning and leaves little lint.

HERE'S A HINT: Dirty mirror in the guest bathroom? Lysol Spray, which you may use to "freshen the air" is a great glass cleaner as well. It also is a good toilet cleaner - just spray and wipe. Sanitizes, too. Clean the bath in a hurry before guests arrive, and leave it sanitary and smelling fresh as well.

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I may add to this list as time permits. The point is, if you are creative and approach every purchase and expense in your life creatively and analytically, you can save yourself a lot of money. Going along with the flow or "doing what everyone else is doing" can often cost you a lot of money in the long run, with no apparent benefit.

Wednesday, November 18, 2009

Many people panic when the dreaded "Check Engine" Light comes on in their car. They are convinced that an expensive repair will be needed and the car needs to be taken to the dealer or a mechanic right away. This is not always the case.

Understanding what the Check Engine light is and what it means will help you save a lot of money if you own a car.

Check Engine Lights are related to emissions controls, period. When the light comes on, it usually means some emission-related item on your car is not working properly. This can mean the engine is not working properly as well (emissions controls are part and parcel of engine controls). But unlike the TEMP and OIL lights, it does not necessarily mean the car is going to melt down in a matter of minutes or seconds. On the other hand, I am not suggesting you should drive around with the Check Engine light on for the rest of your life.

A brief history of the Check Engine light will help to understand how it works - and also how the light on your particular year of car works.

In the late 1970's, the EPA mandated that emission controls be warranted for 50,000 miles. Carmakers fought this on technical and financial grounds. The key component that was problematic was the oxygen sensor (or Lambda probe, named for the 16.67:1 air to fuel ratio that provides optimal combustion).

While exhaust systems could be made to last 50,000 miles (up to the catalytic converter, anyway) by aluminizing them or using stainless steel, the fragile Lambda probe would only last about 25,000 miles. The probe detects oxygen in the exhaust and uses rare earth elements in its construction.

The solution was to provide a light on the dashboard that would illuminate after 25,000 miles. For most cars of the late 1970's, this was triggered by a device attached to the odometer - a simple gear driven switch. It could be reset by a using unbent paper clip to preset a reset button, for another 25,000 miles. Many drivers did this, instead of replacing the oxygen sensor. However, usually this meant the car ran poorly after the sensor went bad.

OBD I (On Board Diagnostics, version I) was introduced in the early 1990's. These systems used generally one oxygen sensor (or one per bank) ahead of the catalytic converter. A computer system monitored the various sensors and conditions and if an error was detected, it would log a code internally and then illuminate the "check engine" light. When the "check engine" light was illuminated, it could be read (on some cars) using a "stomp test" where jamming the acceleration pedal to the floor with the key in the ON position would cause the light to blink in a morse-code fashion. Different makes and model cars had different techniques for reading codes - you have to consult a service manual or search online for your specific car. Or a code reader could be used to read the digital code and then the error message looked up in an accompanying booklet.

OBD I cars were fairly robust and not prone to generating spurious codes. But it should be noted that just because a code mentions a particular car part, does not mean the corresponding repair is to replace that part. Even experienced car mechanics often fail to see this.

Oxygen sensor technology had improved by that time to the point where the sensors were deemed good for 50,000 miles. Most manufacturers recommend replacing them at a predetermined interval, although I have found that time, as well as mileage, is indicative. Most will last longer than 50,000 miles, if the car is driven a lot in a short period of time. On the other hand, a "garage queen" car may need a new one at 30,000 miles, if it is eight years old.

OBD II was introduced around the mid 1990's. This newer system features on-board emissions testing, as well as diagnostics, and as a result, in many States, emissions testing consists of plugging the car into an analyzer using the OBD II port (often under the dash) and see if there are any error codes. If there are no codes, it passes.

Note that error codes may be stored, even if the check engine light is OFF. In many instances, the CE light will not be lit until an error code is present for a predetermined amount of time, or if a number of error codes are present. This was an attempt by the manufacturers to get OBD II to stop crying "Wolf" so much, and it works, to some extant.

OBD II cars constantly monitor emissions by using a second oxygen sensor (or sensors, if multiple banks are used) to measure oxygen content after the catalytic converter. Similarly, the evaporative emissions system is checked by monitoring pressure in the fuel tank to detect leaks in gas caps and fuel lines. It is a much more complex and error prone system than the older OBD I cars.

Most OBD II cars require a code reader in order to read out the error codes and diagnose problems. Usually a specialized code reader for a particular make will have a code book specific to that make and model car. Generic readers, often offered for free use at many auto parts stores (Autozone or the like) generate "P-codes", which are generic codes to all makes and models (and often less useful in diagnosing problems). Usually these codes are the letter P with four digits after them.

Oxygen sensor technology has improved even further with OBD II, with many lasting 100,000 miles or more, although again, they may fail before then, if the car is just plain old - even if it has low mileage.

Error codes on OBD I and OBD II cars may reset themselves over time (after a predetermined number of starts) if the underlying error is no longer present. So if a spurious error code is generated, you may get a Check Engine light and then a week later, it may go away. It happens.

SRS (airbag) lights, generally do NOT reset over time, as these are safety related items. Usually a separate code reader is required for these items. A typical problem with SRS systems occurs, for example, when seatbelt switches become momentarily disconnected, when the connectors are kicked by back seat passengers or are pulled when moving the seat from one extreme to another. Usually, cleaning the contact and wire-tying the connectors together snugly fixes the problem. Many dealers instead recommend expensive replacement of seat switches. However, given the serious safety concerns in dealing with airbag systems, I would not recommend trying to work on these yourself, unless you really know what you are doing. Airbags can be set off by accident, and if you are in the wrong place, can literally take your head off.

Bear in mind that Check Engine error codes are generally emissions related and do not necessarily mean the engine is going to fail. If your engine does fail, the Check Engine light may come on, but the reverse is not necessarily true. The CE light is not as critical as your temperature light, and particularly your OIL light. If the temp light comes on, you have minutes to shut off the engine to prevent further damage. If the oil light comes on, seconds. Most cars can run for years with an illuminated CE light, depending on what error is generating it.

To avoid panic on the part of consumers, some manufacturers experimented with different wordings, such as "check engine soon" or "service engine soon" or the like. When these lights first appeared, many consumers thought the car was going to blow up right away, and would have the car towed to the dealer in a panic.

The Check Engine light should not be confused with engine service indicators for oil changes and services, such as used by BMW for its oil change interval detector (which bases oil change intervals on number of starts, speeds driven, temperatures, loads, time, etc.) or the mileage based Inspection I and Inspection II protocols.

For the do-it-yourself mechanic you can often Google search an error code (ANDed with the model car name) and find websites, discussion groups, blogs, and even photos, describing the likely problem and illustrating do-it-yourself repair procedures. You will generally need to have a code reader, however.

Again, just because an error code mentions an engine part does not mean that part is at fault. For example, "Oxygen sensor out of range" usually means that a leak has formed in an inexpensive ($15) rubber intake bellows, which can be easily replaced. It generally does not mean the more expensive oxygen sensor is broken.

Similarly, a "Catalytic Converter Efficiency Below Threshold" message may indicate a faulty oxygen sensor, which is a far cheaper part than the catalytic converter. OBD II codes do not indicate the part at fault, but the symptom of the underlying problem. They are a diagnostic tool, not a "read and replace" instruction device.

Think of it this way. You go to the doctor and he notices you have an irregular heartbeat. Does this mean you need a heart transplant? Heck no. There are dozens of causes of such conditions. The symptom is only one aspect of the underlying diagnosis. You don't just start replacing internal organs because they are misbehaving. It could be something as simple as a drug interaction. OBD II diagnostics work the same way. They tell you the symptom, not the cause of the problem. And sometimes the cause can be exceedingly trivial!

Many consumers have been angered by OBD II cars, which, like a Windows-based computer, often generate spurious error codes. A loosely attached gas cap, for example, will generate a "Check Engine" light, with the code translating to "Large Leak - Evaporative Emissions System" or the like. Usually tightening the gas cap fixes the problem. A thin film of plumbers silicone grease on the gasket also helps. But this is little comfort to the owner who just spent $90 at a dealer to figure this out.

Occasionally, the OBD II computer just goes berserk and "throws codes", for example, if you stall the car. These codes are not an indication of any real failure, just the computer receiving a voltage spike or inconsistent readings and generating error messages.

Just as you would not start tearing apart a Windows computer every time it generates an error message, you should not immediately go looking for broken parts on your car because the Check Engine light is on (particularly with an OBD II car). Reset the code first and see what happens.

Usually, resetting the code (again, a code reader makes this easy for the consumer to do) will clear the problem, with no need for a trip to the dealer. If a code reappears immediately, it is likely a "hard fault" and a broken part is likely indicated (e.g., camshaft position sensor, throttle position switch, etc.).

If an error code reappears over time, then a condition may exist that needs repair. Writing down the codes and the date and monitoring them can be an effective diagnostic, just as checking your blood pressure is and effective diagnostic of your circulatory health.

In some instances, if a serious enough fault occurs, the car won't run at all. You'll have to have it towed to a mechanic (or fix it yourself). In other instances, the car may still run, but not as well as before. Many "fail safe" modes exist that allow the car to run, but not in an optimal fashion. An Oxygen sensor may malfunction, but the car will continue to run, albeit rich. The car may run rough and gas mileage will suffer. It may be necessary to have the car serviced to get it back into top running condition. Letting Check Engine light problems fester for years is never a good idea, even if the car continues to run, however. A too-rich mixture in "limp home mode" will eventually clog the catalytic converter, for example.

Note that for emissions testing, the computer on an OBD II car needs 50 to 100 miles of sample data to "log" in order to determine whether the car is operating properly. Resetting the check engine light just prior to emissions testing will usually result in an immediate failure for lack of logging data. If you reset the CE light, drive the car at least 50 miles before testing, or it will fail on low data.

That's probably more than you wanted to know. In reality, the engine management computer is a fairly primitive device, compared to the computer on your desk. It is not too difficult to diagnose problems with the error codes associated with the CE light, particularly with the help available on the Internet.

If you are handy with tools and have patience and don't mind searching on the Internet, you can fix a lot of minor problems on your car (various sensors, gaskets, etc.) by reading check engine codes with a code reader and searching online for solutions. As with everything on the Internet, it pays to look a lot and get a consensus as to what is going on, as there is a lot of bad information out there.

If you are not handy with tools, then don't attempt such repairs. However understanding what the Check Engine light means and how it works will help you to understand the repair procedure better.

Mowing five acres of lawn sounds like fun. But it really is just an exercise in futility.

Americans love their lawns. Billions are spent annually on lawn mowing machines, fertilizers, irrigation systems, pesticides, turf, grass seed, and the like. Millions of man-hours are wasted every year on lawn mowing. For many Americans, particularly men, and particularly older men, and particularly retirees, the obsession with the "perfect lawn" can quickly become a nightmare. And in recent years, lawns have become larger and larger as houses have become bigger and ill-advised density rules have made lot sizes larger.

The revelation for me regarding the lawn came about when I was visiting a tractor dealer and was trying to rationalize to myself that spending $15,000 on a lawn mower was a sound financial proposition. I suddenly 'woke up' in the middle of the transaction and realized that I was about to piss away a substantial amount of money on a machine to maintain a huge swath of lawn (nearly five acres) that I didn't really need - or want.

And yet, for many Americans, maintaining the perfect lawn - and a large lawn, is considered the ultimate status symbol and something that is both desirable and beautiful. Economically and ecologically, however, the perfect lawn can be a nightmare to both your pocketbook and the environment. By creating an artificial environment, sustained by non-native species of grass, fed with chemical fertilizers (derived from crude oil) and poisoned by toxic chemicals (to kill bugs) we displace a quantity of natural habitat, for little purpose other than aesthetics.

And it is an interesting aesthetic. To some extent, the vast greed sward is attractive, if part of an English Country Manor Estate. But surrounding a manufactured home, well, it just looks kind of cheap and middle-class. And the American middle-class loves to mow lawns.

In creating the "perfect lawn" nearly every aspect of nature is against you. In addition to bugs, lack of rain, drainage, and poor soil, you will be fighting gophers, moles, skunks (who like to dig) deer (who eat and defecate) as well as a host of other animals. The large sward of grass is nothing more than a declaration of war on nature. And it is a battle that you will lose, the moment you drop your vigilance. Why bother fighting in the first place?

Historically, the lawn originated with the raising of sheep and other grazing animals. Grazing animals keep grasses at a trim level, and they naturally fertilize a lawn with their droppings. It is perhaps some evolutionary trait of ours to prefer the view of a neatly trimmed verdant lawn, as it reflects on the prosperity and contentment of the successful shepherd or farm owner.

The blame for the modern lawn, however, I believe rests with the English and their country homes. While they may have had acres of grazing pastures surrounding their estates, the acres close in were maintained by armies of servants and cutting machines, providing the manicured look of the English garden.

The problem is, middle class Americans have tried to mimic that look over the years. In the early part of the last century, most Americans had fairly modest homes on small lots. It was not a huge effort to maintain a small and orderly lawn with a hand-powered reel mower. Only the rich had large lawns surrounding their mansions. And the large lawn was one sign of wealth.

In the post-war housing boom, houses sprang up in suburbia, often with quarter acre to half-acre lots. People wanted space, and these relatively large lawns provided the appearance of wealth. The gasoline powered rotary lawn mower, a relatively new invention, made it possible for the average Dad to mow these larger yards. Companies like Briggs and Stratton and Techumsah prospered with brisk sales of their small lawn mowing engines.

But of course, there was more to lawn care than merely mowing the grass, and in short time, whole industries sprung up to solve lawn problems and provide the more verdant and lush lawn that would be 'the envy of the neighborhood'. Like the big car or the new television, the lush lawn became a status symbol, and many, if not most folks got caught up in the spending spree toward the perfect lawn. And those without the perfect lawn got caught up in the lawn anxiety prevalent at the time and hyped on television. Crab grass was touted as some sort of personal failure, like "telltale dandruff". And Madison Avenue had products to sell you that would solve both problems.

As lawns got larger in the 1950's and 1960's, riding mowers and small "garden tractors" became more popular. Today, most suburbanites have such riding machines, and many Dads secretly enjoy their weekend jaunts on these machines, a chance to play farmer in miniature scale. Many view mowing time as a time to themselves.

In the 1990's many developments started placing homes on huge lots. In some instances, ill-conceived zoning density requirements mandated no more than one home per five acres. Builders responded by making building lots larger and larger - plopping mini-mansion houses in the center of five-acre tracts which were formerly farm fields. The former farm land was replanted in grass.

Many homeowners suddenly found themselves responsible for large acreages of lawn which they had little or no interest in. And yet homeowner's association rules mandated that it all be mowed down. Small armies of immigrants sprang up to mow down the lawns of these developments.

The Great American Lawn reached its apex.

We decided to get off the "big lawn" bandwagon this year. The previous owner of our home had spent considerable time and effort to make the huge lawn nice. But mowing many acres of lawn is time consuming and expensive. With a small agricultural tractor and zero radius mower (combined value, nearly $8000), it still takes 2-3 hours for two people to mow all that lawn. And while it does have some aesthetic appeal, it is a very costly and time-consuming item to own.

Moreover, trying to keep such a lawn verdant is difficult. The cost of properly fertilizing and spraying insecticide on such a lawn is prohibitive. Thus, if you want to "do it right" you'd have to invest tens of thousands of dollars in mowing machines and chemicals, over time, to truly make it into a showplace lawn.

We decided instead to let more than half of it revert to meadow. Letting the grass (and wildflowers) grow will provide better habitat for local animals. And the cost of mowing such a field (done maybe once every two years) is far less than the weekly cutting required. Wear and tear on mowing equipment is dropped. We probably will be able to sell the tractor entirely, or use it only for the occasional bush-hogging. But frankly, it may be cheaper to just hire someone to do that every two years.

By letting that part of the lawn "go", we can concentrate more on the lawn surrounding the house, which can be more carefully maintained and look nicer. It is far easier to mow such a smaller section and also trim, fertilize, and spray for insects.

For our Georgia home, we are planting fan palms (or letting this native species grow up, instead of mowing it down) which create a restful appearance of a primeval jungle. By taking up more and more of the yard, these palms, which grow like shrubs, reduce the amount of mowing needed.

Other types of ground cover, Myrtle and the like, also can reduce or eliminate the need for lawn, and be largely maintenance free and attractive.

Many Americans are discovering the joys of the home vegetable garden - and pulling up useless lawns to plant vegetables. Unfortunately, they are running smack-on into American's love of lawns, as local regulations and homeowner's association rules often forbid such plantings, at least within a certain distance of the road.

Many more Americans are discovering the joys of smaller lawns. Houses need not be spaced acres apart, and the ill-conceived notion of housing density per acre has resulted in the destruction of more and more farmland. It is better to place houses in small "villages" as our ancestors did, and allow surrounding lands to be farmed, than to place houses in a spaced apart pattern across the landscape.

In many drier areas, many are abandoning the lawn altogether in favor of dryscaping using native rocks and plants. Trying to create a verdant lawn in a desert is proving to be a folly.

For many folks, however, the option of going lawn-free is difficult, if not impossible. If you own a home on a 1/3 acre lot in a humid climate, it is impossible for lawn NOT to grow. Dryscaping is not an option, just a weeding nightmare. And it is hard not to get caught up in the race to have the greenest lawn in the neighborhood.

There are some things you can do, however. First, stop obsessing about having the perfect lawn. If your self-esteem is tied up in how your lawn looks compared to the neighbors, then maybe it is time to re-evaluate your priorities. Granted, a good looking lawn will increase your resale value when it is time to sell you home. If you plan on selling your home, spend some money fertilizing and weeding in the year or two before you sell, to make the house look better. But until then, just cut it.

Another option is to set your mower higher. Many older men like to set their mowers on "Scalp" which keeps the lawn nearly like a putting green. It also makes the lawn look like it needs mowing more often, which means that you have to mow it more to keep it looking nice. Set your mower at the highest setting possible. Not only does this mean less mowing, but it also means the grass will be healthier. If you don't believe me, ask the local landscaper - or better yet, take a close look at how high his mower is set.

A new innovation that may make the lawn easier to deal with is the robotic lawn mower - the answer to the prayers of lazy men (and women) everywhere. Powered by a rechargeable battery (which may be recharged from solar panels), these small robots randomly traverse your lawn like the "roomba" vacuum cleaner and continuously mow the yard using small blades attached to DC motors. The only problem with these "lawn bots" is that they are relatively expensive at the present time, and thus don't reflect an answer to the lawn problem, but just another expensive symptom of it.

The obsession over the Lawn has become so ingrained in American life that many can't even conceive of life without it. Many older men, upon retirement, have little or nothing else to do other than to obsess about their lawns ("Maybe now I'll have time to get the lawn in shape!" they say). But spending your "golden years" trying to make a swath of grass look "perfect" to impress others (how much time do owners spend "enjoying" their own lawns?) seems like a waste of time and money to me. But once on the lawn bandwagon, it is hard to get off. The industry is more than happy to reinforce this lifestyle choice.

The irony is, of course, that while a nice lawn is nice, it adds little to the resale value of a home. And eventually, the retired man will end up in a retirement home (after having a stroke while mowing his lawn) and have no lawn to care for. And certainly, his epitaph will not read, "He had a really nice lawn".

"The grass is always greener on the other side of the fence," they say. That's the way it should be!

Above- the Great American Self-Storage Locker can be a useful thing to some folks, but a huge money-waster to most.

In the early 1980's self-storage facilities started springing up all across America like dandelions after a rainstorm. I only wished I was smart enough to build and own one of these money-makers. What caused this trend to occur? What are people storing? And why?

The self-storage locker can be a financial trap for many folks, slowly bleeding them dry, one credit card charge at a time. If you can, avoid using a self-storage locker entirely. Oftentimes it is better to sell things than pay to store them.

As I have noted an earlier post, money is one of the greatest inventions of all time. You can sell things and convert them into money, which is portable, compact, and can be stored easily (and set to work earning interest) and then later on re-converted back into the item you sold. It is as magic as Captain Kirk's transporter beam. A used car can be converted to money, moved halfway across the planet, and then re-converted into another used car. Magic!

Going overseas for a year or two? Rather that pay money to store your 1995 Ford, sell it, put the money in the bank, and when you get back, you'll have enough dough to buy a 1997 Ford in better shape than the car you sold. If you store the car, you pay hundreds and hundreds in storage fees and end up with an old depreciated car. Yet many people do the latter, thinking they are "saving money" by keeping the old car around.

I've talked with owners and workers at these storage locker places and I've asked them what people store in these things. "Crap, mostly" they say. When the renter doesn't pay his storage fees, the things they pull out of there are pretty pathetic. Most of it ends up in the dumpster. Yes, it is true, people pay money to store their garbage.

The storage locker is a trap, because once you have one, you become tempted to store more and more things there, on the premise that "Well, I already have the storage locker, I might as well use it". Once the locker is full, trying to empty it and get out from under the monthly storage fees is a difficult and daunting challenge, as it may take weeks or months to sell or dispose of all the stuff inside.

Let me give you a personal story that illustrates this point.

When I closed my office in Alexandria Virginia and decided to "go solo" I had several desks, chairs, and other office furniture and supplies that I had to move out, in order to rent the space. What I should have done is had garage-type sale and sold it all for whatever little I could get for it. THAT would have been the smart move.

Instead, I spent several back-breaking days moving all this stuff into a storage locker, which cost nearly $200 a month, plus a security deposit. Some of the items were damaged in transit. Then I forgot about it for months at a time.

Months later, I had some stuff taking up space in my house. Rather than selling it or throwing it away, I thought "Well, I'll put it in the storage locker!" and went off to load up the cubicle even more. Pretty soon, the storage locker was full to the top with stuff. And my credit card kept getting dinged to the tune of $199 a month.

A year later, I realized that I had spend over $2000 in storage fees for little or no apparent reason. I had no bona fide intent to use these desks and other things in the future. Moreover, the cost of the storage fees was starting to exceed the value of the items stored. I put an ad in the paper and over the next two months slowly sold off the office furniture. When it was all said and done, the amount I realized from the sale of the furniture was about equal to the storage fees I had paid over the preceding 12 months.

In other words, I would have been better off just throwing the stuff away or giving it away. Or, better yet, if I sold the desks for $50 each, someone would have done the backbreaking job of hauling it all away for me, and I would have made several hundred dollars. Lesson learned.

I was lucky. I know others who have not one, but several storage lockers full of stuff, that they have been paying rent on for several years (7 or more). The amount of money spent on storage, over time, is staggering. Thousands and thousands of dollars. Enough to buy a car. When I ask them what they have in these storage lockers, they sigh and say "I don't really know". Not having the time to "clean out" the storage locker, they continue to pay and pay. Eventually, they will stop paying and the manager will sell their goods at a monthly auction for a pittance.

Don't get me wrong, there are constructive uses for storage lockers. If you run a small business, a storage locker can be a lot cheaper than warehouse space - and more flexible as well. I bought a hot tub once from a lady who sold them online, using three adjacent storage lockers as her "warehouse". If you run a landscaping business and live in an apartment, a storage locker can store your trailer with all the lawn service equipment. If you are a carpenter, you can store your tools there and run a business, even if you do not have space at home. Many businesses can be run successfully out of a storage locker, with low overhead.

If you are storing an item seasonally, such as a boat or RV, a storage locker can be an inexpensive and cleaner alternative to a barn or shed. We keep our small travel trailer in an $88 a month locker for six months of the year. We do, however, use that trailer, for at least a month every year. And we rent the locker for only six months of the year.

How can you avoid trouble with a storage locker? Here are some tips I have learned:

1. Have a definite plan or goal for use, which includes a maximum time period: If you are moving and putting things "temporarily" in a storage locker, consider how long you should store things before it becomes too much. If you find yourself paying rental fees after a year, consider it time to sell. Have a rational plan for why you are storing things and set a maximum time period (less than a year, preferably) and then unload the stuff if your plans change, rather than hang onto things out of pride.

2. Avoid the temptation to add things: If you put your classic car in the storage locker for the winter, avoid the temptation to add boxes of old china and junk just because you have the locker. Once the locker is full, you'll find it hard to unload it, and you may end up not using your classic car next summer! Many storage lockers take on this look, chinked to the rafters with stuff, to the point that the owner no longer is aware what is inside the locker. Saving things and paying rent to save them makes no sense. Don't add to the locker, or you'll find it nearly impossible to clean it out later on.

3. Consider SELLING your stuff instead: One storage locker manager told me that her biggest customers were people going to jail. Oftentimes, they had no place to leave their "stuff" and instead of selling it off (and perhaps paying their lawyer?) they would store junk furniture and old cars, paying hundreds of dollars a month. Saving an old car for two to three years makes no sense at all, as it will depreciate in value over that time AND you are paying to store it. Plus, cars hate to sit, and you will likely have mechanical problems once you take it out of storage. There is very little that is worth "saving" for such long periods of time, even classic cars, antiques, or collectibles. Liquidate it and buy it back later on. Chances are, later on, you may decide you don't want that item (or its equivalent) back anyway. If faced with the choice of buying the junk they already have, most people would take a pass.

4. Ask yourself if you are developing HOARDING DISORDER: See my article on the subject. Storage lockers allow closet hoarders to hide their affliction. They save junk in the storage locker on the premise that it is "worth something" when in reality it is junk, worth far less than the storage fees. If you have a storage locker full of things you have not visited in months, and are paying fees for stuff for years, ask yourself why - and whether you are developing this debilitating disorder. Hoarding Disorder is one of the hardest mental illnesses to treat, as most afflicted by it do not think they have a problem. The storage locker industry is all to happy to cater to those with this illness. Get Help.

Storage lockers have proliferated across America, and like everything else that is "popular", it is generally a bad idea. Just because your friends and neighbors have storage lockers full of junk does not make it a sound financial proposition. Sell the junk, convert it to capital, and get rid of the monthly expense of storage. If it is in storage for months at a time, you aren't using it. And if you aren't using it, why own it?